RENTAL INCOME

  • CASH FLOW.  You get a monthly cash flow over and above the PITI (principal, interest, taxes and insurance) if structured properly.  We call it mailbox money.
  • PRINCIPAL PAYDOWN.  Each and every month a portion of your debt servicing payment goes towards paying down principal which is paid by the tenant.
  • APPRECIATION.  Typcially real estate appreciates on average 6% per year when looking over the long term.  You can’t expect it and not part of our calculations when determining the yield.  This is just icing on the cake!  
  • TAX BENEFITS.  Several tax benefits such a writing off depreciation, taxes paid, interest paid, expenses, etc.  Powerful for reducing tax liability.
  • SCALABLE.  Multiunit or apartment investing allows you to scale your cash flow and decrease your costs by have multiple renters under one roof.
  • DIVERSE.  You can buy a rental house/apartment in all areas of the country.  This also helps reduce your exposure to one geographical location since you are able to buy rental real estate in all 50 states.
  • ADDITIONAL FEE INCOME.  In addition to the rental income you have other profit centers such as late fees, deposits, option consideration (usually non-refundable), other services such as laundry, vending machines, etc.
  • MONTHLY PAYMENTS.  When buying rental real estate you always want to ensure your rent rate is higher than the PITI going out.  
  • ADDITIONAL FEE INCOME.  In addition to the rental income you have other profit centers such as late fees, deposits, option consideration (usually non-refundable), other services such as laundry, vending machines, etc.
  • SALE RENTAL. You can sell your rent-ready single family residences or multiunit apartment to a larger company or institutional buyer.
  • APPRECIATION.  If you had a portfolio of rental properties valued at $1 Million and the market appreciates 10% you just made $100,000 for doing nothing!  
  • CAP RATES.  The CAP rate or capitalization rate is the ratio of Net Operating Income (NOI) to property asset value.  CAP rates on single family residence can vary dramatically and usually ranges from 5-10%.  CAP rates in the multifamily world are lower and overal are 6-7% and as of 2017 are running 6%.  Class A multifamily run 4-6%, class B and C run 6-8% and class D run 8%+.  Class A is nice and class D is not so nice of a property.  However, when you use debt to purchase a property, then you are using leverage and depending how much leverage you use your IRR could be much higher.
  • LIABILITY.  The exposure to liability is much higher with rental property as compared to buying a note or making a loan (i.e. private lending).  Someone can slip and fall and sue you as the rental home owner whereas most mortgage holders don’t own the house and therefore have no liability when someone gets injured at the house.  
  • MAINTENANCE AND REPAIRS.  The landlord is expected to keep the property up to certain standards and when something breaks the owner has to do the repairs and make sure property is in good working condition.  These added expenses much be part of the calculations when buying rental property.  
  • INSURANCE AND TAX INCREASES.  Unexpected increases in insurance and taxes can reduce the overall cash flow of a rental property and the owner has little or no control over these expenses.
  • RE-ZONING AND POA.  Sometimes properties are rezoned or the property owners association changes the rules and does not allow rental properties in that particular community.